A dwindling supply of big construction projects is leading to unhealthy competition among bidders for too few jobs, some in the industry say.
While project owners are benefiting from low bids, contractors are going farther to bid for work, are bidding on jobs they wouldn't have considered a few years ago, and, in some cases, are bidding projects below cost while hoping to outlast the current construction slowdown, they say.
"There's very little to bid on," says Paul Levernier, a principal in Levernier Construction Inc., of Spokane, which specializes in school projects valued at more than $5 million.
"The spigot slowed to a trickle in August of 2008," Levernier says.
Since then, the company has won only two major jobs. One was a $12.8 million contract awarded last May to modernize and expand Freeman High School, in the town of Freeman, 19 miles south of Spokane, and the other was a $10.4 million contract awarded in August to remodel and expand Cascade Medical Center, in Leavenworth, Wash.
Additionally, every project the company has bid on in more than a year has had 15 to 20 bidders, up steeply from earlier competition levels, Levernier says. From 2006 through most of 2008, it was common for three or fewer bidders to compete for major jobs, and prior to that four to seven bidders were the norm, he says.
"At one point, we had $30 million in work for which we were the only bidder," Levernier says.
He says he's alarmed by results of a recent survey conducted by the national Association of General Contractors in which 17 percent of Washington state-based respondents reported they have adjusted bids to the point that they are taking losses.
That means in a field of 20 bidders, about four contractors likely are bidding below their costs, and those that don't, won't get work, Levernier says. While the price might seem right for project owners, contractors are struggling to keep their doors open, he says.
"An unhealthy market is never good," he says.
Because there is virtually no backlog of projects, the market is going to get even worse for the construction industry, Levernier says.
"I think we're going to see a shakeout at all levels of construction, including subcontractors and suppliers," he says. "There's going to be a different look to the industry a year or two from now."
Matt Knoll, director of business development at Spokane-based Lydig Construction Inc., says Lydig is competing for Eastern Washington bids with a lot of companies coming east of the Cascades from the Seattle and Portland areas.
For instance, a number of them were among the 20 contractors that submitted bids for a project at Central Washington University budgeted at $17.5 million. Lydig, which has a Puget Sound-area office, recently won the contract with a low bid of $11.8 million.
The throng of bidders has risen sharply in number since as recently as September 2008, when only two contractors submitted bids to construct city of Spokane swimming pools. Graham Construction & Management Inc., of Spokane, won that job with a bid of $20.2 million, Knoll says.
Some contractors that have backgrounds primarily in private construction now are seeking public works contracts, and smaller companies are bidding for bigger jobs than they ever had before in an effort to stay busy, he says.
Conversely, Lydig has ramped up its special projects division, which specializes in smaller projects, during the current economic downturn. Knoll says the company had eight projects under $1 million in each of 2008 and 2009, which is up significantly from previous years.
Wayne Brokaw, executive director of Inland Northwest Associated General Contractors, the Spokane-based chapter of the earlier-mentioned national organization, says contractors from throughout the state are going beyond their normal geographic range to chase work.
"Everybody is trying to find work for their employees," he says. "It's nothing new for Spokane-area contractors to travel. It's new to have the level of players we've seen here in the last year and are continuing to see."
Brokaw says he's concerned that some contractors are bidding too low.
"I get alarmed when I see some of the bids, knowing contractors are rolling the dice," he says. "Some contractors are taking chances that they haven't missed any hidden costs that will catch them off guard."
One potential benefit of under-budget bids on public works projects, though, is that some of the savings realized can be used to fund additional work.
Some projects on the North Spokane Corridor have come in significantly under engineering estimates, Brokaw says, adding, "We're working hard to keep those dollars here."
Graham Construction is working on two major North Spokane Corridor projects under contracts with a total value of $80.3 million, which was about $30 million below Washington state Department of Transportation's original engineering estimates.
Pending legislative approval, DOT would like to direct some of those cost savings to further the overall freeway project, says Al Gilson, DOT spokesman.
Jeremy Carroll, president of Graham Construction, says the company has been flooded with a wave of inquiries from subcontractors looking for work, some from as far away as Texas, and which the company hasn't worked with before.
"Our concern is with subcontractors," Carroll says. "We have to decide whether to accept a low bid from someone we don't know or skip over them to somebody we're familiar with at the risk of not submitting the lowest bid."
Greg Brown, director of capital projects for Spokane Public Schools, says low bids for the first two projects under the district's current $288 million construction bond levy have come in significantly under budget.
"People are really sharpening their pencils," he says.
In December, Leone & Keeble Inc., of Spokane, won a $6.6 million contract to replace roofs and heating, ventilation, and air-conditioning systems at Audubon, Cooper, and Holmes elementary schools. The district had budgeted the project at $9 million.
Prior to that, Garco Construction Inc., of Spokane, won a $5 million contract for similar work at Garfield and Longfellow elementary schools. That project had been budgeted at $7 million.
At least seven bidders competed for each of those projects, Brown says, adding that three to five bidders usually bid for such projects in better economic times.
Brown says he believes the biggest driver in lower-than-budgeted bids is an overall dearth of such work, although the cost of building materials also has been stable.
"I think contractors are doing everything they can to minimize their costs and labor hours," he says.
There's stiff competition even for small projects, such as the demolition of an old field house on the Shadle Park High School campus, Brown says. Eleven contractors submitted bids for the demolition project, which was budgeted at $150,000. Rob's Demolition Inc., of Spokane, won the contract with a bid of $95,000.
The district had put the demolition project out to bid two years ago, but the lowest bid then was $165,000, and the district decided to shelve the project temporarily and rebid it later.
Brown says about half the contractor inquiries about projects planned under the current bond levy are coming from the West Side. Bidders rarely came from as far away as the Tri Cities area for projects funded under the previous bond levy, he says.
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